VAT Ruling No. 060-01

September 12, 2001 VAT RULING NO. 060-01 106 (a) (2) (a) (1) 000-00 Mr. Jose V. Bithao, CPA Mambog, Bacoor, Cavite S i r : This refers to your letter dated November 5, 1999 requesting for a ruling on whether your client, Feranti Shirt Factory, Inc., would be subject to VAT and Withholding tax examination per LA No. 00001820 issued on October 29, 1999 to examine the company's 1998 Internal Revenue Tax liabilities by RDO 29. It is represented that your client is a BOI registered 100% garment exporter, who availed of the ERAP program on June 10, 1999 and was issued with Certificate of Immunity from Audit on September 29, 1999 on its income tax; that it is likewise your opinion that it was not possible for your client to avail of the ERAP program for VAT because it cannot be made liable to pay 2% of gross sales when basically it is zero rated and exempted from paying VAT. In reply, please be informed that the applicability of the immunity from VAT audit under the ERAP program was clarified in Revenue Memorandum Circular No. 17-99 and 18-99, each entitled "SALIENT FEATURES OF REVENUE REGULATIONS NO. 2-99, OTHERWISE KNOWN AS THE "ECONOMIC RECOVERY ASSISTANCE PAYMENT (ERAP) PROGRAM", GRANTING IMMUNITY FROM AUDIT AND INVESTIGATION OF INCOME TAX, VAT AND PERCENTAGE TAX RETURNS FOR THE TAXABLE YEAR 1998 UNDER CERTAIN CONDITION." pertinent provisions of which heretofore follows: xxx xxx xxx Q-15: If the taxpayer availed of the privileges under RR 2-99 for income tax purposes only, will his VAT and percentage tax return enjoy immunity from audit and investigation ? A-15: No. The immunity from audit and investigation of 1998 tax returns under RR 2-99 is on a per tax type basis. Hence, if the taxpayer availed only for income tax purposes, his VAT or percentage tax returns for the year 1998 shall not enjoy immunity from audit and investigation. xxx xxx xxx Q-24: Can VAT taxpayers whose input taxes exceed their respective output taxes in all quarterly returns of 1997 and 1998 avail of the immunity ? A-24: Yes. The 1997 returns are considered as no-payment returns. In which case, the taxpayer shall pay of 1% (for individuals) or 2% (for corporations) of their gross sales or receipts for 1998 to qualify for immunity from VAT investigation. This is apart from their availment of the program for income tax purposes. ScAIaT . . . [Revenue Memorandum Circular No. 17-99 dated March 11, 1999] Q-14: Can VAT taxpayers whose input taxes exceed their respective output taxes in all quarterly returns of 1997 and 1998 avail of VAT immunity ? A-14: Yes. If all of the 1997 VAT quarterly returns reflect output tax due, the taxpayer may qualify for immunity by paying 20% or more of the 1997 output taxes of the four taxable quarters. However, if there are no output taxes, as in the case of zero-rated VAT exporters, the 1997 VAT quarterly returns are considered as no-payment returns. In which case, the taxpayer shall pay of 1% (for individuals) or 2% (for corporations) of their 1998 gross sales or receipts to qualify for immunity from VAT investigation under the ERAP Program. This is apart from their availment of the program for income tax purposes. . . . [Revenue Memorandum Circular No. 18-99 dated March 15, 1999] Based on the foregoing provisions, it is clear that while Feranti Shirt Factory, Inc. being an exporter of garment is not subject to the 10% VAT rate, its sales is subject to zero percent (0%) rate provided Feranti Shirt Factory, Inc. is VAT registered and the goods so exported are paid for in acceptable foreign currency and accounted for in accordance with rules and regulations of the Bangko Sentral ng Pilipinas. Thus, its qualification under the ERAP program is premised on the payment of of 1% (for individuals) or as in Feranti's case, 2% (for corporations) of its 1998 gross sales or receipts in order to be afforded the immunity from audit and investigation for that year. The ERAP program as provided under Revenue Regulations No. 2-99 is simply the criterion adopted for the selection of tax cases for audit for the year 1998, which selection policy has been authorized under Section 6 (A) of the Tax Code. It covers only Income, VAT, and percentage taxes. The scheme of the program is to raise additional revenue for the government in exchange for immunity from audit and investigation for the year 1998, and not to confer any additional burden on the taxpayer, other than that which is already imposed by law. Therefore, the compulsion to make the additional payments comes only from the taxpayer wanting to relieve himself of the rigors and trouble of a tax audit. In fine, the availment of the program is purely voluntary in character. Accordingly, inasmuch as your client, Feranti Shirt Factory, Inc. availed only of the program for the grant of immunity from income tax audit and investigation, and withholding taxes are not covered by the program, the examination of the VAT and withholding tax liabilities shall proceed. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue